Investments is a Complex Polynomial Equation

While we must accept that investment is a polynomial equation and not a linear one, it’s also important to note that it can have an easy and simple answer! Bear with me for 2 minutes before we discuss the one possible answer.

The Equation

Let us begin with an understanding of the equation itself.

I was invited to give a talk on how to be a smart investor by a Lion’s Club last week. The organisers had said that there would be a crowd of 80-100 people atleast. 40 people turned up. My experience told me it was a good number!

The irony is that while people agree that time and money were the two most important resources of their lives, there would be a bigger crowd in Malls where the time and money is being spent with joy instead of being gainfully utilized. Try talking to them how to make optimum use of the two resources of time and money, there would be umpteen excuses for skipping the talk.

But it’s quite natural. We all avoid talking about these serious issues and would prefer doing small talk in a Mall. Yes, me too!

One component of the equation is that we avoid talking about investments. (at-least as freely and openly as we discuss buying a mobile phone!!)

While I talk about how we can make money work for us, understand how markets work and on making the right investment moves, I also point out that just having the knowledge is a small part of the jigsaw puzzle.

The iceberg model of success is an interesting example. Knowledge of a thing is just the tip of the iceberg. The 90% part of the iceberg is how to implement that little knowledge.

Knowledge is a small component of our investment journey. Our attitude, discipline and persistence plays a big role.

In fact, it’s important to realize that just the knowledge of financial markets is a small part of the knowledge universe. Financial literacy is different from investment literacy. For example, I know a lot of people employed in the financial services industry in insurance, mutual fund companies who don’t know anything about their own investment products!

It’s important to accept the reality of the polynomial equation. The equation consists of avoidance, numbers, knowledge, investor psychology, etc.

Rather than preaching from high moral grounds on what an investor should do or trying to change investor psychology, let us take a look at some possible answers.

So what’s the answer to the complex equation?

A much better idea is to nudge investors in the right direction. That’s what I try to do in my talks. The point of this post is not to just rant about the problems, but to think aloud of possible solutions.

And there’s good news that the possible answer could be very simple. Just like driving a car!!

To drive a car, one needs to coordinate the wheels, brake, accelerator and the clutch. You don’t need to be an automobile engineer to drive a car.

Similarly, you don’t need to be a financial expert to start investing. You just need an expert driver!

So the one thing you can do is to find the right driver, aka advisor. Or a company who makes great investment products.

Just like your job is to get the best car (shiny or fuel efficient according to your needs) and the best driver (DIY or a decent chauffeur), in investments, you need to figure out a good financial product manufacturer and an advisor.

It’s that simple!! 🙂

Finding the right advisor and financial product manufacturer is another long post, though! 🙂